When might Additional Damages be a better bet than damages under the IP Enforcement Directive?

Until recently there had been relatively little case law on the Directive on the Enforcement of Intellectual Property Rights (2004/48/EC) (the Enforcement Directive), despite it coming into force over a decade ago. But in the last two years there have been a flurry of cases dealing with damages awards under the Enforcement Directive.

Typically damages awards compensate the rightholder for their loss arising as a result of the infringement. However, there is frequently also a need to compensate the rightholder as a result of the infringer’s lack of respect of the law and / or to dissuade the infringer or other potential infringers from committing such acts in the future. There are provisions in the Enforcement Directive and also within the Copyright Designs and Patents Act 1988 (the CDPA) which address this need. The interpretation of and interplay between these provisions is currently being grappled with by the Courts.

In particular, the case of Absolute Lofts South West London Limited v Artisan Home Improvements Limited [2015] EWHC 260 (IPEC), examined the relationship between Article 13(1) of the Enforcement Directive and additional damages under s.97(2) of the CDPA and held that the rightholder could elect for either. More recently, in Phonographic Performance Limited v Raymond Hagan t/ a Lower Ground Bar and The Brent Tavern and others [2016] EWHC 3076 (IPEC) the Court looked at when the rightholder might elect for one provision over the other and therefore gave us an insight into the difference between the two provisions and what each aims to achieve.

Background to the Enforcement Directive

The aims of the Enforcement Directive are perhaps best encapsulated by recital 3, which explains that “without effective means of enforcing intellectual property rights, innovation and creativity are discouraged and investment diminished. It is therefore necessary to ensure that substantive law on intellectual property…. is applied effectively in the Community. In this respect, the means of enforcing intellectual property rights are of paramount importance for the success of the Internal Market”. Article 13 covers “damages” and states that:

1. Member States shall ensure that the competent judicial authorities, on application of the injured party, order the infringer who knowingly, or with reasonable grounds to know, engaged in an infringing activity, to pay the rightholder damages appropriate to the actual prejudice suffered by him/her as a result of the infringement.

When the judicial authorities set the damages:

(a) they shall take into account all appropriate aspects, such as the negative economic consequences, including lost profits, which the injured party has suffered, any unfair profits made by the infringer and, in appropriate cases, elements other than economic factors, such as the moral prejudice caused to the rightholder by the infringement; or

(b) as an alternative to (a), they may, in appropriate cases, set the damages as a lump sum on the basis of elements such as at least the amount of royalties or fees which would have been due if the infringer had requested authorisation to use the intellectual property right in question.

2. Where the infringer did not knowingly, or with reasonable grounds know, engage in infringing activity, Member States may lay down that the judicial authorities may order the recovery of profits or the payment of damages, which may be pre-established.

Additional Damages under s97(2) CDPA

Section 97(2) of the CDPA provides for “additional damages” to be awarded in certain circumstances and states that:

(2) The court may in an action for infringement of copyright having regard to all the circumstances, and in particular to—

(a) the flagrancy of the infringement, and

(b) any benefit accruing to the defendant by reason of the infringement, award such additional damages as the justice of the case may require.

What is the interplay between Article 13(1) of the Enforcement Directive and s97(2) of the CDPA?

In Absolute Lofts, Hacon J concluded that Article 13(1) “provides an EU-wide baseline minimum of protection for owners of IP rights” and so where Article 13(1) provides a greater remedy than s97(2), a rightholder can elect to rely on that provision and where s97(2) is more beneficial that provision can be relied upon.

Hacon J had previously opined, in the case of Jodie Aysha Henderson v All Around the World Recordings Limited ([2014] EWHC 3087) that additional damages (in that case under 2191J(2) of the CDPA which concerns performers’ rights) had been made redundant by Article 13(1) of the Enforcement Directive. This was somewhat surprising, since the provisions relating to additional damages in the CDPA were not repealed when Parliament introduced the Regulation enacting the Enforcement Directive in the UK. However, Hacon J did not have to decide this issue in Henderson, but did so in Absolute Lofts.

So which provision should the winning party elect for?

In the case of Phonographic Performance Limited, Hacon J considered when it might be more advantageous to rely on one or the other of these provisions. Phonographic Performance Limited concerned proceedings bought by Phonographic Performance Limited (PPL) for infringement of copyright in sound recordings in public without a licence by two bar owners. Damages had already been awarded to PPL in respect of the lost licence fees but this aspect of the case concerned the issue of additional damages.

When considering whether to apply additional damages under s97(2) or under Article 13 of the Enforcement Directive, Hacon J, observed that both provisions require knowledge on the part of the Defendant that he was infringing, whilst this is not an express requirement in s97(2), it is directed to flagrancy which implies knowledge.

Hacon J opined that Art 13(1) focuses on the prejudice suffered by the rightholder, not how flagrantly the defendant conducted himself, though Art 13(1) may be flexible enough to take flagrancy into account. In the present case, since PPL had already been awarded damages by way of the loss of license fees, the Judge concluded that if PPL was entitled to any other relief it would be because of the Defendant’s flagrancy. As such, in this instance s97(2) was “the safer bet“. Hacon J went on to conclude that the Defendant’s infringements were not just knowing but flagrant, referring to the fact that he was prepared to deal with PPL only as a last resort and when forced to. However, the amount of damages already awarded indicated that the infringements were not on a grand scale. An important factor, Hacon J surmised was whether an additional award of damages was likely to be dissuasive. He explained that s97(2) should be construed with the Enforcement Directive as a whole and that Article 3 of the Enforcement Directive states that “among other things, that Member States should provide remedies necessary to ensure the enforcement of intellectual property rights that are effective, proportionate and dissuasive.”

He concluded that there were two ways of viewing the dissuasive requirement. Firstly, that the Defendant itself should be dissuaded from infringing again and second that other infringers would be dissuaded from infringing. In this case, the Defendant already owed a debt which he may not be able to pay: he was described by his trustees in bankruptcy as “an illiterate alcoholic“. Therefore, the Judge was doubtful that he would represent a threat of future infringement of PPL’s rights. On this basis he awarded the sum of £2,000. Whilst this sum is quite low, the Judge was careful to explain that other infringers may require more dissuading and so may be liable to pay additional damages on a higher scale.

What does this mean for damages claims for winning rightholders?

The recent case law suggests that where an infringer has knowingly infringed or acted with flagrancy it is worthwhile making a claim for further damages. At this stage the precise scope of Article 13(1) of the Enforcement Directive and s97(2) CDPA is still unclear and so it would be prudent to rely on both provisions unless a factual scenario exists which clearly falls within Absolute Lofts.